Mid-Year Market Review – Investing in a Pandemic
Any analysis of the global economy and financial markets in 2020 needs to start with an understanding of the pandemic itself. COVID-19 has killed over 400,000 people worldwide and 110,000 in the United States. The good news is that the adoption of social distancing has caused a plateau in the number of cases and fatalities in the US. However, with the relaxation of these social distancing measures and with more states starting to reopen, there could be a stalling point and progress may reverse in the months ahead. Mortality data in South Korea, Taiwan, Australia and New Zealand (where COVID-19 has essentially been wiped out through testing, contact tracing and quarantining) suggests that COVID-19’s true mortality rate is close to 1%. This would show that less than 5% of the global population has been infected to this point. While better treatments may reduce the number of deaths associated with the disease, the global economy may continue to be impacted by some form of social distancing until a vaccine is developed, possibly in 2021.
With the data coming in, it is clear that the U.S. has fallen into its deepest recession since the Great Depression. What many are still trying to figure out is the shape of recovery the recession is likely to take in the coming months. Some say it will be a V shaped recovery, others think a U shape, and some suggest an L shaped depression. With families being forced to stay at home, it is clear that there is some pent-up demand to go out to restaurants and retail stores. What we could see is more of an initial bump as more states reopen, followed by a crawl. As manufacturing, construction, auto, and home sales adjust to normal levels, there should be a nice surge for economic activity. The reason we may see a slowdown once states reopen fully is due to a wide array of the economy where it is very difficult to achieve social distancing and operate profitably. In particular, activity in restaurants, brick and mortar stores, air travel, hotels, sporting events, and all large group activities should remain severely constrained until a vaccine is ready to be widely distributed.
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson
With all of that being said, the stock market has been resilient in the face of all of this bad news. From the market low on March 23rd, the S&P 500 is up almost 40% since then. This is mostly due to the fact that there has been tremendous monetary and fiscal support to act as a backstop to the economy. Investors are focusing on re-opening measures and an expectation of a swift rebound in corporate profits. The market is a forward-looking machine and will most likely be in a tug of war between those who think the worst is behind us and those who think the recovery will be a slow churn upward. What this means for our portfolios here at Sgroi is that we will continue to play defense with our bonds and have a slight overweight to growth sectors of the market. This allows for us to weather the storm in the short/medium term and maintain enough exposure to cyclicality if the market does continue to trend higher. With volatility likely to remain elevated, we feel that this is the best way to move forward, and feel the risks right now in the market do not warrant any significant bets.
We appreciate the continued trust you have put in Sgroi Financial not only during these trying times of 2020, but over the course of your financial journey with us. As always, we are here to assist you with any questions, and hope you have a wonderful summer.
ABOUT SGROI FINANCIAL
Sgroi Financial is a full service, independent financial planning firm proudly serving the Western New York area since 1971. We offer services that will help you achieve your financial goals including retirement planning, investment management, estate planning, college planning and insurance. We help individuals, families, retirees, working adults, young adults and business owners.
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Securities offered through Cadaret, Grant & Co., Inc., member FINRA/SIPC. Advisory services offered through Sgroi Wealth Advisory Group LLC, an SEC Registered Investment Advisor. Sgroi Wealth Advisory Group LLC, Sgroi Financial LLC, and Cadaret, Grant & Co., Inc. are separate entities.
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